UUW 


UC-NRLF 


III    1D1   650 


U.C.  BERKELEY  LIBRARIES 


CD3T235714D 


OPINION 


OF 


HON.  EDWARD  BATES, 

ATTORNEY  GENERAL  OF  THE  UNITED  STATES, 


OX  THE 


VALIDITY  OF  THE  ACCEPTANCES 


GIVEN    BY 


JOHN   B.   FLOYD,  SECRETARY  OF  WAR, 


TO 


RUSSELL,  MAJORS,  &  WADDELL,  NOW 
HELD  BY  PEIRCE  &  BACON. 


University  of  California  •  Berkeley 


OPINION 


OF 


HON.  EDWARD  BATES, 

it 

ATTORNEY  GENERAL  OF  THE  UNITED  STATES, 


ON  THE 


VALIDITY  OF  THE  ACCEPTANCES 


GIVEN    BY 


JOHN  B.  FLOYD,   SECRETARY  OF  WAR, 


TO 


RUSSELL,  MAJORS,  &  WADDELL,  NOW 
HELD  BY  PEIRCE  &  BACON. 


WASHINGTON: 

GOVERNMENT    PRINTING    OFFICK. 

1862. 


ATTORNEY  GENERAL'S  OFFICE, 

JUNE  20,  1862. 

Hon.  E.  M.  STANTON, 

Secretary  of  War. 

SIR :  When  I  had  the  honor  to  receive  your  letter  of  April  21, 
1862,  referring  to  me  the  consideration  of  the  claim  of  Messrs.  Peirce 
&  Bacon,  as  holders  of  certain  drafts  drawn  by  Russell,  Majors  & 
Waddell,  upon  the  Secretary  of  War,  and  accepted  by  John  B.  Floyd, 
the  then  Secretary,  I  doubted  for  some  time  whether  I  could  venture 
to  give  any  official  answer  touching  the  merits  of  the  claim,  because 
your  letter  does  not  contain,  and  was  not  accompanied  by,  any  "case 
made,"  or  statement  of  facts,  which  I  might  fairly  take  to  be  the 
true  and  only  facts  upon  which  the  merits  of  the  claim  ought  to  be 
determined.  My  office  has  no  legal  faculty  to  investigate  and  adjudge 
facts — no  power  to  compel  the  presence  of  persons  and  papers,  nor 
even  to  administer  an  oath.  It  cannot,  therefore,  be  expected  of  me 
to  deal  with  the  facts  of  the  case  beyond  the  means  of  knowledge 
which  you  have  furnished  me,  that  is,  "the  report  of  the  special 
committee  of  Congress  and  the  letters  of  Peirce  &  Bacon  accom- 
panying this  reference."  You  also  furnish,  for  my  assistance  in  the 
matter  of  law,  the  printed  arguments  of  four  learned  counsel,  (Messrs. 
Goodrich  &  Gushing,  of  Boston,  Mr.  Black,  of  Washington  city,  and 
Mr.  Broadhead,  of  St.  Louis,)  in  support  of  the  claim  of  Peirce  & 
Bacon  against  the  United  States,  for  the  amount  of  acceptances  of 
Secretary  Floyd,  which  they  now  hold. 

Accompanied  by  only  these  means  of  information,  you  propound  to 
me  the  following  questions  : 

"1.  Whether  the  government  of  the  United  States  is  legally  or 
equitably  bound  to  make  payment  to  Peirce  &  Bacon,  holders  of  the 
acceptances  given  by  John  B.  Floyd,  while  Secretary  of  War,  to 
Russell,  Majors  &  Co.,  under  the  circumstances  stated  in  the  report 
of  the  special  committee  of  Congress,  and  in  the  letters  of  Peirce  & 
Bacon,  accompanying  this  reference? 

"2.  What  law  or  appropriation  by  Congress  would  authorize  the 
Secretary  of  War  to  make  payment  of  these  acceptances,  or  any  part 
thereof? 


"3.  Whether  the  government  of  the  United  States  have  any,  and 
what,  interest  or  claim  to  the  acceptances  given  by  John  B.  Floyd, 
and  specified  in  the  letter  of  Peirce  &  Bacon,  to  the  Secretary  of 
War,  dated  the  18th  of  March,  1862,  and  therein  offered  to  be  deliv- 
ered up?" 

If  the  legal  merits  of  the  claim  depended  altogether  upon  the  facts, 
as  disclosed  in  the  testimony  which  you  have  sent  me,  I  could  not 
venture  to  give  a  definitive  opinion  upon  them,  because  the  testimony 
is  contradictory  in  some  particulars,  and  wholly  wanting  in  others, 
and  thus  it  is  apparent  that  all  the  facts  of  the  case  are  not  fairly 
before  me. 

Some  important  facts,  however,  do  appear  with  sufficient  clearness, 
being  plainly  stated  in  the  testimony  and  not  contradicted,  such  as 
the  following  : 

1.  That  Russell,  Majors  &  Waddell  had  contracts  with  the  War 
Department  for  transportation,  to  a  large  amount,  from  Missouri  and 
Kansas  to  Utah  and  other  places  in  the  far  west;  that  those  contracts 
stipulated  for  payment  by  the  government,  by  instalments,  or  rather 
successively,  as  the  money  should  be  earned  by  the  performance  of 
the  work  ;  and  that  the  money  was  paid  under  the  contracts,  from 
time  to  time,  as  it  was  earned  ;  and  paid  in  the  regular  and  accus- 
tomed manner  by  the  quartermasters  at  Leavenworth  and  Washing- 
ton city,  respectively. 

2.  That  Russell,  using  the  name  of  his  firm,  drew  a  great  many 
money  orders,  and  to  a  very  large  amount,  upon  the  then  Secretary  of 
War,  Mr.  Floyd,  and  that  Mr.  Floyd  accepted  them;  that  they  were 
so  drawn  and  accepted  without  any  design  or  expectation  that  they 
should  ever  be  presented  to  the  War  Department  for  payment;  that 
they  were  drawn,  not  upon  money  already  earned,  but  in  anticipation 
of  the  contracts,  and  for  the  purpose  of  enabling  Russell  to  raise 
money;  and  that  it  was  understood  and  agreed  between  Russell  and 
Floyd,  that  Russell  should  take  up  the  acceptances  at  maturity,  and 
retire  them  from  the  market;  and  that  the  acceptances  now  held  by 
Messrs.  Peirce  and  Bacon,  and  which  form  the  basis  of  their  present 
claim,  are  of  that  class. 

In  proceeding  to  answer  your  first  question,  I  waive  the  considera- 
tion of  the  supposed  equitable  obligation  of  the  government,  beyond 
the  law  of  the  case,  partly  because  all  the  facts  which  might  touch 
the  equities  between  the  parties  are  not  disclosed  to  me;  but  chiefly 


because  the  claimants  in  their  letters  to  you  and  your  predecessors, 
Messrs.  Cameron  and  Holt,  and  by  their  counsel  in  the  printed 
arguments,  rest  their  claim  upon  the  sole  ground  of  the  legal  obliga- 
tion of  the  goverment  to  pay  these  drafts,  which  it  is  insisted  are 
commercial  bills  of  exchange,  accepted  by  the  government,  negotia- 
ted in  open  market,  and  now  held  by  innocent  purchasers,  for  value. 

That  is  the  governing  question  in  the  case,  and  perhaps  the  only 
one  which  I  ought  now  to  consider. 

Certainly  the  War  Department  has  lawful  authority  to  make 
contracts,  binding  upon  the  government,  for  transportation  and 
supplies  for  the  army.  This  is  a  statutory  power,  and  must  be 
exercised  according  to  law.  In  this  case,  the  legality  of  the  original 
contracts  with  Russell,  Majors  and  Waddell  is  not  drawn  into  ques- 
tion; and  those  contracts  seem  to  have  been  fulfilled,  by  the  perform- 
ance of  the  service,  and  the  payment  of  the  money. 

It  is  not  denied  that  the  government,  acting  by  the  heads  of 
departments,  or  by  other  subordinate  officers,  may  use  bills  of  ex- 
change, in  the  transaction  of  the  public  business,  in  cases  proper  for 
the  use  of  such  instruments,  and  under  circumstances  which  make  it 
necessary,  or,  at  least,  convenient  to  use  them.  And  when  so  used, 
they  come  under  the  law  merchant  and  are  governed  by  its  rules. 
But  it  is  not  every  order  for  the  payment  of  money,  drawn  by  one 
public  officer  upon  another,  or  by  a  creditor  or  contractor  upon  a 
disbursing  officer,  that  is  a  bill  of  exchange.  What  is  a  bill  of  ex- 
change? is  a  judicial  question,  proper  for  the  determination  of  the 
courts.  It  does  not  always  depend  upon  the  mere  form  of  the 
instrument;  for  no  particular  form  is  required  by  law,  but  rather 
upon  its  basis,  the  character  of  the  parties  who  use  it,  the  nature  of 
the  transaction  in  which  it  is  used,  and  the  object  to  be  attained  by 
the  use  of  it.  Among  merchants,  it  is  an  instrument  requiring  the 
utmost  good  faith  in  all  the  parties,  and  a  careful  conformity  to  the 
rules  of  law  and  the  usages  of  trade.  It  is  not  used  as  a  common 
evidence  of  debt,  as  a  bond  or  note  is,  but  generally  for  the  payment 
of  a  pre-existing  debt;  and  its  characteristic  office  is  to  transfer 
money  from  one  man  to  another  or  from  one  place  to  another.  As  a 
mercantile  bill  of  exchange  performs,  to  a  large  extent,  the  function 
of  money  in  the  general  current  of  commerce,  when  once  it  has  been 
drawn  and  accepted,  and  passed  to  an  innocent  purchaser,  for  value, 
it  ought  to  have  the  full  confidence  of  the  trading  community,  and  to 


to  be  as  free  as  possible  from  doubt  and  cavil.  It  ought  to  be  free 
from  all  equities  between  the  original  parties,  and  to  import  an 
absolute  debt  at  the  time  and  place  appointed.  And  this  cannot  be 
without  exact  knowledge  of  two  very  important  facts — the  genuine- 
ness of  the  acceptance  and  the  authority  of  the  acceptor  to  bind 
himself  by  such  an  instrument,  if  he  appear  to  act  in  his  own  right, 
or  to  bind  his  principal  if  he  assume  to  act  as  an  agent.  These  facts, 
every  man  who  buys  such  a  bill  must  ascertain  for  himself  and  at  his 
own  peril,  for  it  is  plain  that  if  the  agent  had  not  authority  from  his 
principal  to  accept  the  bill,  the  acceptance  is  void,  as  to  the  principal, 
and  he  is  not  bound  by  it.  In  such  case,  no  matter  how  honest  the 
endorsee,  nor  how  much  value  he  has  paid,  he  has  vested  his  money 
in  a  void  security.  And  that  not  wholly  without  his  own  fault,  for 
it  was  his  business,  (in  the  language  of  the  Supreme  Court,  15  Pet. 
393,)  to  look  to  "the  genuineness  of  the  acceptance,  and  the 
authority  of  the  officer  to  give  it." 

It  is  a  general  rule  which  admits  of  few  exceptions,  that  a  man 
who  has  money  in  the  hands  of  another  with  a  right  to  receive  it  now, 
or  at  some  known  future  time,  if  he  do  not  choose  to  demand  it  him- 
self in  person,  may,  by  a  written  note,  direct  the  holder  of  the  money, 
to  whom  he  must  pay  it — it  may  be  to  the  creditor,  the  child,  the  ser- 
vant of  him  who  gives  the  order.  And  the  holder  of  the  money,  in 
such  a  case,  has  a  perfect  right,  if  not  a  moral  obligation,  to  admit 
the  goodness  of  the  draft,  and  promise  to  pay  it,  and  that  is  an  ac- 
ceptance. Still,  it  does  not  follow  that  the  order  is  a  bill  of  exchange. 
If  it  be  a  bill  of  exchange,  it  is  made  so  by  the  drawer,  and  is  perfect 
the  moment  he  gives  it  out;  and  its  character,  as  such,  is  not  altered 
by  the  acceptance  or  refusal  of  the  drawee. 

Two  questions  here  demand  consideration — 

1.  Are  these  drafts,  as  now  held  by  Messrs.  Peirce  &  Bacon  com- 
mercial bills  of  exchange,  subject  to  the  law  merchant  ? 

2.  If  they  be  such  bills,  had  Mr.  Floyd,  as  Secretary  of  War,  law- 
ful authority  to  accept  them  so  as  to  bind  the  United  States  for  their 
absolute  payment  ? 

As  to  the  first  :  I  have  already  given  a  brief  statement  of  what  I 
consider  a  bill  of  exchange  to  be,  in  point  of  law.  The  definition, 
the  description,  and  the  general  rules  of  law  applicable  to  bills  of 
exchange  are  so  familiarly  known  to  intelligent  merchants  and  lawyers, 
that  I  forbear  the  citation  of  many  authorities  upon  that  branch  of 


the  subject.     I  only  refer  at  large  to  Chitty  on  Bills,  p.  134,  &c.  ; 
also,  for  Agency,  p.  27,  <fec. 

The  drafts  held  by  Pekce  &  Bacon  have  not  been  seen  by  me,  but 
I  accept  as  sufficiently  reliable  for  this  argument,  the  information  fur- 
nished by  Messrs.  Peirce  &  Bacon  themselves  as  to  the  form  of  the 
drafts.  In  their  statement  of  case  for  the  opinion  of  their  counsel, 
Mr.  Goodrich,  as  to  the  liability  of  the  government,  they  say,  '  *  We 
are  the  holders  of  sundry  acceptances,  drawn  by  Russell,  Majors  & 
Waddel  upon  the  War  Department,  and  accepted  by  Secretary  Floyd, 
of  which  the  folloioing  are  samples.  (Of  course,  each  one  of  the  rest 
is  in  the  one  or  the  other  of  these  forms.) 


"$20,000.  WASHINGTON,  November  26,  1859. 

"Ten  months  after  date  pay  to  our  own  order,  for  value  received, 
at  the  Bank  of  the  Republic,  New  York  city,  twenty  thousand  dol- 
lars, and  charge  to  account  of  our  contracts  for  supplies  of  the  army 
in  Utah. 

"RUSSELL,  MAJORS  &  WADDELL. 
"Hon.  J.  B.  FLOYD, 

"  Secretary  of  War." 

Endorsed  upon  the  back  :  "  RUSSELL,  MAJORS  &  WADDELL. " 

Written  upon  the  face  : 
"  E.  T.  WAR  DEPARTMENT,  November  26,  1859. 

"  Accepted. 

"JOHN  B.   FLOYD, 

"  Secretary  of  War." 


"$5,000.  WASHINGTON  CITY,  August  15,  1860. 

"Seven  months  after  date  pay  to  our  own  order,  at  the  Bank  of 
the  Republic,  New  York,  five  thousand  dollars,  for  value  received, 
and  charge  to  our  transportation  contract  of  the  12th  day  of  April, 
1860. 

"RUSSELL,  MAJORS  &  WADDELL. 
"Hon.  J.  B.  FLOYD, 

"Secretary  of  War." 


Endorsed  upon  tlie  back :  "  RUSSELL,  MAJORS  &  WADDELL." 

Written  upon  the  face  : 

"No.  58.     Accepted. 

"JOHN  B.  FLOYD,     . 

' '  Secretary  of  War. 
"  WAR  DEPARTMENT,  22d  August,  1860." 

Their  statement  proceeds  :  ' '  Russell,  Majors  &  Waddeli  were  con- 
tractors with  the  War  Department  for  supplies  and  transportation  for 
the  use  of  the  array  in  Utah.  We  have  no  means  of  stating  the 
terms  of  their  contracts,  except  so  far  as  they  appear  or  may  be 
implied  from  the  bills  of  exchange." 

On  this  I  remark — 

1.  These  forms  are  well  enough  for  bills  of  exchange,  if  the  facts 
warranted  the  forms. 

2.  Peirce  &  Bacon  dealt  directly  with  Russell,  Majors  &  Waddell, 
(who  were  both  drawers  and  endorsers  of  the  drafts.)  and  thus  they 
themselves  began  the  operation  of  giving  currency  to  these  drafts. 

3.  They  did  it  with  full  knowledge  that  Russell,  Majors  &  Waddell 
were  government  contractors   '  *  for  supplies  and  transportation  for  the 
use  of  the  army  in  Utah."     And,  dealing  with  them  as  such  con- 
tractors, they  probably  knew,  in  fact,  and  in  contemplation  of  law 
were  bound  to  know,  that  the  drafts  were  drawn  upon  money  to  be 
earned  under  those  contracts,  and  to  be  paid  according  to  the  terms 
thereof. 

4.  And  yet,  without  assigning  any  reason  for  their  lack  of  know- 
ledge, they  avow  their  ignorance  of  the  terms  of  the  contracts  under 
which  they  were  vesting  large  sums  of  money  j   and   they  utterly 
ignore  the  statute  laws  which  govern  such  contracts. 

5.  Under  these  circumstances,  it  requires,  I  think,  some  degree  of 
boldness  to  affirm  that  Messrs.  Peirce  &  Bacon,  who  I  understand  are 
eminent  merchants,  are  prudent  and  innocent  holders  of  the  drafts. 
for  value,  believing  them  to  be  mercantile  bills  of  exchange. 

I  said  above  that  the  claimants  rested  their  right  upon  the  sole 
ground  of  legal  obligation,  resulting  from  the  facts  of  the  drawing, 
the  accepting,  and  the  endorsing  of  the  drafts.  Perhaps  that  state- 
ment ought  to  be  a  little  modified  ;  for  I  perceive  that  one  of  the 
learned  counsel  (by  way,  I  suppose,  of  committing  the  government 
to  an  acknowledgment  of  the  validity  of  the  drafts,  as  accepted,) 


9 

state?,  in  his  printed  argument,  that  ;t  acceptances  taken  by  them 
and  their  correspondents  had  been  duly  paid,  as  they  matured."  That 
is  a  clear  mistake  of  fact..  Not  one  of  them  was  paid  by  the  acceptor, 
at  maturity,  or  ever;  and  that  alone  is  due  payment.  If  Russell  (who 
was  at  once  drawer  and  endorser)  took  them  up  and  retired  them, 
that  is  not  due  payment,  but  is  only  the  carrying  out  by  Russell  of 
his  private  bargain  with  Floyd,  whereby  he  (Russell)  was  to  be  en- 
abled to  raise  money  in  advance  of  his  lawful  contracts,  by  selling 
the  simulated  securities  of  the  government,  in  the  shape  of  accepted 
drafts,  which  the  drawer,  and  not  the  acceptor,  was  to  redeem. 

The  War  Department  has  never  recognised  these  drafts  as  debts, 
legally  binding  upon  it.  Four  Secretaries,  in  rapid  succession — 
Floyd,  Holt,  Cameron,  Stanton — have  had  the  matter  urgently 
pressed  upon  them  ;  yet  not  one  of  them  has  paid  a  single  one  of 
those  drafts.  And,  although  three  sessions  of  Congress  have  been 
held  since  the  beginning  of  this  difficulty,  still,  I  believe,  not  one  of 
those  four  Secretaries  has  included  this  item  in  his  estimate  of  appro- 
priations, proper  to  be  made  by  Congress,  for  the  public  service. 
Why  t  I  cannot  certainly  know,  but  probably  because  every  one  of 
them,  knowing  the  statute  law,  knew  that  the  Secretary  of  War  had 
no  authority  to  bind  the  United  States,  by  accepting  a  contractor's 
draft,  in  advance  of  his  contract,  and  before  he  had  earned  the 
money  drawn  for. 

Now,  an  order  to  pay  money,  and  an  acceptance  (which  is  an 
implied  promise  to  pay)  on  a  particular  contingency,  which  may  or 
may  not  exist,  is  not  a  mercantile  bill  of  exchange  ;  for,  however 
respectable  and  solvent  the  names  of  the  drawer,  the  acceptor,  and 
the  endorser,  it  does  not  import  an  absolute  debt,  payable  at  the 
time  and  place  named.  It  cannot  command  the  confidence  of  the 
trading  community,  nor  pass  current  in  the  money  market,  for  the 
plain  reason  that  every  holder  must  take  it  at  his  own  risk,  assuming 
the  duty  to  ascertain  for  himself  the  existence  of  the  facts  necessary 
to  make  the  instrument  an  available  security — in  other  words,  that 
the  contingency  will  happen.  Such  a  paper  may  be  a  very  good 
contingent  order  for  money,  but  not  a  commercial  bill  of  exchange. 

The  word  draft  is  generic,  and  comprehends  all  the  species  of 
money -orders — embracing  bills  of  exchange,  checks  on  bankers,  and 
indeed  every  variety  of  written  directions  to  pay  money.  All  of  them 


10 

are  drafts,  conferring  rights  and  imposing  obligations  upon  all  who  deal 
in  them,  as  the  laws  apply  to  their  respective  cases  ;  but  certainly 
they  are  not  all  commercial  bills  of  exchange.  If  a  public  contractor 
draw  upon  the  fiscal  agent  of  the  government  for  money  supposed  to 
be  due  him,  by  the  terms  of  a  written  contract,  it  is,  of  course, 
subordinate  to  the  contract;  for  the  contractor  can  have  no  right  to 
draw,  nor  the  agent  to  promise  to  pay,  otherwise  than  according  to 
contract.  Such  a  draft  may  be  a  good  order  to  pay,  under  the 
circumstances,  but  surely  not  a  commercial  bill  of  exchange. 

That  Mr.  Pierce  knew  the  quality  of  these  drafts,  and  the  circum- 
stances under  which  they  were  drawn  and  accepted,  is  manifest,  from 
his  letters  which  you  sent  me,  and  especially  from  his  testimony 
given  before  the  committee  of  the  House  of  Representatives.  (See 
printed  report,  p.  359,  &c.)  He  knew  that  the  drafts  were  drawn 
in  reference  to  written  contracts  for  supplies  and  transportation  j 
that  they  were  drawn  in  advance  of  those  contracts,  and  for  money, 
at  the  date  of  the  drafts,  unearned  under  the  contracts.  And,  under 
the  circumstances,  it  is  fair  to  impute  to  him  the  knowledge  that 
Russell,  and  not  Floyd,  was  expected  to  take  up  the  drafts.  He 
believed,  with  Floyd,  (see  his  printed  testimony  as  above,)  that  these 
drafts  were  the  best  public  securities,  because  the  appropriation  was 
already  made  to  pay  Russell,  Majors,  and  Waddell's  contracts,  and 
so  "no  further  action  of  Congress  ivas  necessary." 

In  my  opinion,  these  drafts  are  not  mercantile  bills  of  exchange — 
not  negotiable  paper,  under  the  law  merchant. 

The  learned  counsel  of  Messrs.  Peirce  and  Bacon,  all  four  of  them, 
begin  by  assuming  the  main  question  in  the  case — that  is,  that  these 
drafts  are  mercantile  bills  of  exchange,  that  the  United  States  had 
become  a  party  to  them  by  the  acceptance  of  Mr.  Floyd,  and  that 
they  had  been  negotiated  in  open  market.  Assuming  these  funda- 
mental propositions  as  true,  a  very  easy  and  simple  process  of  rea- 
soning, (if,  indeed,  any  reasoning  be  necessary  in  such  a  case,)  leads 
to  the  inevitable  conclusion  that  the  United  States  ought  to  pay  the 
money.  It  needs  no  argument  to  convince  me  that  the  United 
States,  like  a  private  person,  ought,  in  all  honesty,  to  fulfil  its  con- 
tracts. I  am  not  resisting  the  conclusion  drawn  from  the  assumed 
premises,  but  denying  the  premises  themselves — denying  that  these 
acceptances  of  Mr.  Floyd  constituted  any  contract  of  the  United 
States. 


11 

As  to  the  second  question — that  ie,  had  Mr.  Floyd,  as  Secretary  of 
War,  and,  in  that  capacity,  agent  of  the  United  States,  authority  to 
accept  these  drafts,  so  as^to  bind  the  government? 

It  seems  to  me  very  clear  that  he  had  no  such  power  ;  that  it  did 
not  belong  to  him,  as  a  general  power  inherent  in  his  office,  or  inci- 
dent to  the  discharge  of  any  duty  imposed  upon  him  by  law;  and, 
moreover,  that  it  is  forbidden  by  statute. 

The  United  States  always,  and  individuals  often,  act  by  agents,  as 
well  in  regard  to  bills  of  exchange  as  other  pecuniary  transactions; 
and  I  am  not  aware  of  any  legal  difference  between  these  two  kinds 
of  agencies,  public  and  private,  so  marked  as  to  need  the  separate 
consideration  here  of  each  kind.  For  the  purposes  of  this  argument, 
I  will  suppose  that  they  are  alike,  and  are  governed  by  the  same 
law.  with  perhaps  this  difference,  that  it  is  generally  easier  to  ascer- 
tain the  powers  of  a  public  agent,  who  is  such  by  reason  of  holding 
a  public  office,  than  the  powers  of  a  private  agent,  because  the 
powers  and  duties  of  the  former  are  granted  and  limited  by  law,  and 
therefore  are  presumed  to  be  known  to  all  men,  whereas  the  powers 
and  duties  of  the  latter,  depend  upon  the  will  of  the  individual 
employer,  and  are  evidenced  only  by  private  acts. 

I  assume  it  as  a  general  principle,  inculcated  by  the  whole  theory 
and  practice  of  our  government,  that  there  is  no  officer  under  the 
Constitution,  from  the  President  down  to  a  disbursing  clerk,  who  is 
entrusted  by  law  with  unlimited  power  over  the  money  and  the  credit 
of  the  nation — no  officer  who  has  authority  by  law  to  create  valid 
debts  against  the  nation  in  any  form,  and  especially  by  the  bare  fact 
of  accepting  bills  of  exchange,  and  that  too  without  any  rule  but  his 
own  judgment,  or  any  limit  but  the  interest  of  himself  and  his 
friends.  Such  a  power  would  be  at  war  not  only  with  the  theory  of 
our  institutions,  but  with  our  history  and  our  legislation  from  the 
very  beginning  of  the  government.  There  is  no  subject  of  legisla- 
tion in  regard  to  which  Congress  has  habitually  exhibited  such  vigi- 
lant caution  and  such  jealous  distrust,  as  the  custody  and  disposition 
of  the  public  money.  The  statute  book  abounds  with  checks  and 
guards  against  those  officers  who  are  entrusted  with  the  keeping  of 
the  public  funds,  and  with  penal  denunciations  against  those  who 
abuse  that  trust.  Yet  it  is  now  seriously  claimed  that  the  head  of  a 
department,  (and  consequently  any  subordinate,  who  is  entrusted 
with  the  keeping  and  the  paying  of  the  public  money,  or  the  making 


12 

of  any  contracts,)  has  power  to  create  and  establish  a  debt  against 
the  United  States,  by  the  bare  fact  of  the  acceptance  of  a  bill  of 
exchange,  without  any  reference  to  the  amount  involved,  or  to  the 
truth  or  falsehood  of  the  facts  upon  which  the  bill  is  supposed  to  be 
founded.  The  acceptance  of  the  Secretary  of  War,  they  insist, 
admits  all  material  facts,  and  concludes  the  government. 

One  of  the  learned  counsel  in  his  printed  argument  thus  compen- 
diously states  the  law  of  the  case,  in  favor  of  his  clients  : — 

"The  Secretary,  by  an  unconditional  acceptance  of  the  drafts, 
admits  the  contracts,  and  the  right  of  the  drawers,  under  their  con- 
tracts, to  make  the  drafts.  These  admissions,  in  contemplation  of 
law,  upon  the  facts  stated,  in  my  judgment,  are  conclusive  in  your 
favor,  as  indorsees.  The  United  States  cannot  be  permitted  to  say 
that  the  drawers  are  not  contractors,  or  that  they  were  not  authorized 
to  make  the  drafts.  This  is  the  result  of  the  principle  that  an 
acceptor  who  makes  an  unconditional  acceptance,  cannot  resist  the 
title  of  the  holder,  by  saying  he  had  no  funds,  or  the  drawer  had  no 
right  to  make  the  draft.  This  principle  is  applicable  to  the  United 
States,  as  acceptors,  to  the  same  extent  as  it  is  to  an  individual  who 
becomes  an  acceptor." 

If  all  this  be  true,  there  is  no  room  for  argument,  and  no  possi- 
bility of  escape;  for  it  boldly  assumes  every  material  fact  and  every 
legal  doctrine  necessary  to  establish  a  perfect  claim  against  the  gov- 
ernment. It  assumes  that  the  Secretary  of  War  has  "a  general 
authority,"  a  broad,  unlimited  power,  to  accept  bills  of  exchange,  in 
the  name  of  his  office,  so  as  to  bind  the  nation.  It  assumes  that  be- 
cause the  Secretary  wrote  across  the  face  of  the  bills  these  words, 
"Accepted,  John  B.  Floyd,  Secretary  of  War,"  the  United  States 
has  admitted  that  Russell  &  Co.  had  contracts  with  the  government 
under  which  they  had  the  right  to  draw  the  bills,  (and,  of  course,  if 
they  had  a  right  to  draw,  there  was  a  corresponding  duty  to  accept 
and  pay)  without  any  reference  to  the  terms  of  the  contracts,  (for  the 
terms  are  not  stated,)  and  without  any  regard  to  the  number  of  the 
drafts  or  the  amount  drawn  for !  And  it  assumes  that  these  admis- 
sions are  "conclusive  "  in  favor  of  the  claimants;  and  that  the  United 
States  is,  by  some  latent  potency  in  the  words,  "accepted,  John  B. 
Floyd,  Secretary  of  War,"  estopped,  concluded,  "not  permitted" 
to  deny  the  obligation  to  pay  the  drafts,  however  large  the  amount ; 
nor  to  inquire  into  the  truth  or  falsehood  of  the  assumed  facts  ! 


13 

These  assumptions  are  all  made  without  any  reference  to  the  sta- 
tute law  ;  for  it  is  not  even  claimed  that  there  is  any  act  of  Congress 
granting  such  enormous  power  to  the  Secretary  of  War.  or  to  any 
officer  of  the  government.  But  the  power  is  inferred,  by  construc- 
tion only,  from  the  supposed  nature  and  character  of  his  legal  duties. 
Waiving  all  prolonged  argument  against  such  startling  inferences  and 
dangerous  constructions,  I  content  myself  with  quoting  a  dictum  of 
the  Supreme  Court,  delivered  by  Chief  Justice  Marshall,  in  the  case 
of  the  Postmaster  General  vs.  Early,  (12  Wheat.,  136.)  In  that  case, 
treating  of  the  powers  and  duties  of  the  Postmaster  General,  and  the 
construction  which  had  been  attempted  to  be  put  upon  them,  and 
upon  the  laws  which  govern  them,  the  court  uses  this  emphatic  lan- 
guage :  "That  construction  which  will  produce  a  consequence  so 
directly  opposite  to  the  whole  spirit  of  our  legislation,  ought  to  be 
avoided,  if  it  can  be  avoided  without  a  total  disregard  of  those  rules 
by  which  courts  of  justice  must  be  governed." 

Thus  far  I  have  endeavored  to  treat  of  the  authority  of  the  Secre- 
tary to  accept  these  drafts,  upon  general  principles,  and  in  view  of 
his  official  relations  to  the  nation,  as  one  of  its  fiduciary  agents.  Let 
us  see  now  whether  there  is  any  statutory  prohibition  against  his 
giving  such  acceptances. 

The  act  of  Congress  of  January  31,  1823,  chapter  9,  section  1,  (3 
Stat.  at  Large,  p.  723,) provides,  "that  from  and  after  the  passage  of 
this  act,  no  advance  of  public  money  shall  be  made  in  any  case  what- 
ever; but  in  all  cases  of  contracts  for  the  performance  of  any  service, 
or  the  delivery  of  articles  of  any  description  for  the  use  of  the  United 
States,  payment  shall  not  exceed  the  value  of  the  service  rendered, 
or  of  the  articles  delivered,  previously  to  such  payment." 

[There  are  two  provisos  to  this  section,  giving  to  the  President 
certain  special  powers,  in  the  cases  therein  mentioned,  which  do  not 
touch  the  matter  in  hand.] 

It  is  the  plain  meaning  of  this  law,  that  no  money  shall  be  advanced 
to  contractors;  that  is,  that  no  money  shall  be  paid  to  them  on  account 
of  their  contracts  before  the  actual  performance  of  the  service  or  the 
delivery  of  the  articles  stipulated  for.  And  this  not  only  forbids  the 
contracting  officer  of  the  government  to  pay  the  money  in  advance, 
but  forbids  him  also  to  contract  for  such  payment;  for,  manifestly, 
he  cannot  lawfully  contract  in  behalf  of  the  government  to  do  a  thing 
which  the  law  forbids  to  be  done. 


14 

If  it  be  said  that  the  giving  of  these  acceptances  is  not  an  advance 
of  public  money,  is  not  a  payment  exceeding  the  value  of  the  services 
rendered  or  the  articles  delivered,  I  answer  it  is  an  attempt  to  enable 
the  contractor  to  raise  money,  under  color  of  his  contract,  which  he 
had  no  right  to  have  by  the  contract  itself.  It  is  an  effort  to  pledge 
the  faith  of  the  nation,  in  a  vendible  form,  for  the  obvious  purpose 
of  enabling  the  contractor  to  get  money  on  account  of  his  contract 
before  the  government  owed  him  anything  for  service  done  or  goods 
delivered  under  the  contract.  If  this  be  not  verbally  and  technically 
a  breach  of  the  statute,  it  is  plainly  an  indirect  contrivance  to  have 
money  advanced  to  the  contractor  in  fraud  of  the  act  of  Congress. 

Again,  the  act  of  February  26,  1853,  chap.  81,  section  1,  (10  Stat. 
at  Large,  p.  170,)  entitled  ''An  act  to  prevent  frauds  upon  the 
Treasury  of  the  United  States, ' '  provides,  ' '  That  all  transfers  and 
assignments  hereafter  made,  of  any  claim  upon  the  United  States,  or 
any  part  or  share  thereof,  or  interest  therein,  whether  absolute  or 
conditional,  and  whatever  may  be  the  consideration  therefor,  and  all 
powers  of  attorney,  orders,  or  other  authorities  for  receiving  pay- 
ment of  any  such  claim,  or  any  part  or  share  thereof,  shall  be  abso- 
lutely null  and  void,  unless  the  same  shall  be  freely  made  arid 
executed  in  the  presence  of  at  least  two  attesting  witnesses, 
after  the  allowance  of  such  claim,  the  ascertainment  of  the  amount 
due,  and  the  issuing  of  a  warrant  for  the  payment  thereof." 

Since  the  receipt  of  your  letter,  you  have,  at  my  request,  caused 
me  to  be  furnished  with  a  copy  of  two  of  the  contracts  made  by  Rus- 
sell, Majors  &  Waddell,  with  the  Quartermaster  General,  approved 
by  Mr.  Floyd,  then  Secretary  of  War.  By  these  it  appears  that  the 
quantity  of  freight  to  be  carried  was  not  precisely  stipulated  in  the 
contracts,  nor  foreknown  to  the  parties,  but  depended  upon  the  exi- 
gencies of  the  government,  and  the  directions  of  the  quartermasters 
in  charge  ;  that  the  money  did  not  fall  due  in  any  stipulated  amounts 
or  at  stipulated  times,  but  according  to  the  amount  of  freight  carried 
to  particular  places  or  particular  distances,  at  rates  fixed  in  a  bill  of 
prices,  which  forms  a  part  of  the  contracts  ;  and  that  there  were 
contingent  claims  agreed  for,  which  might  or  might  not  exist  and  be 
allowed. 

And  thus  it  appears  that,  under  these  contracts,  settlements  from 
time  to  time  were  indispensable  ;  for  in  no  other  way  could  there  be 


15 

"an  allowance  of  such  claim,  and  the  ascertainment  of  the  amount  due, 
and  the  issuing  of  a  warrant  for  the  payment  thereof,"  as  provided 
for  in  the  above  cited  act  of  1853.  If  these  drafts  were  intended  by 
the  parties  to  be  "order*"  upon  the  contract  money,  then  they  were 
expressly  forbidden  by  the  act  ;  and  if  they  were  intended  to  be 
general,  commercial  bills  of  exchange,  without  reference  to  the  con- 
tracts, or  to  the  funds  to  arise  under  them,  then  they  had  no  honest 
foundation  in  fact  or  law — and,  consequently,  the  Secretary  of  Wai- 
had  no  authority  to  pledge  the  national  faith  for  their  payment.  If 
he  had  such  authority,  it  must  rest  upon  the  assumption  that  he  is 
the  general  agent  of  the  United  States,  with  full  power  to  charge 
the  nation  with  indefinite  debts,  with  no  guide  for  his  conduct  but 
his  own  discretion,  and  no  restraint  but  his  personal  honesty. 

It  is  claimed  on  the  part  of  Messrs.  Peirce  and  Bacon,  that  the  long 
practice  of  the  government,  and  a  long  course  of  judicial  decisions, 
do  plainly  establish  the  legality  of  their  present  demand.  I  cannot 
concur  in  that  opinion;  and  in  expressing  my  dissent,  in  view  of  the 
authorities  cited  in  their  behalf,  I  shall  not  weary  you  with  any  criti- 
cal examination  of  the  numerous  cases  referred  to;  for  all  of  them,  it 
seems  to  me,  are  substantially  embraced  within  and  covered  by  the 
leading  case — the  United  States  vs.  Bank  of  the  Metropolis,  15  Peters' 
Rep.,  p.  378.  That  was  an  action  of  assumpsit,  for  the  balance  of 
an  account;  the  plea  was  the  general  issue  only.  No  bill  of  exchange 
or  other  draft  was  pleaded  on  the  record,  by  either  party,  and  so 
there  could  not  be  any  direct  issue  of  fact  or  law  upon  the  existence 
or  the  legality  of  any  such  instrument.  At  the  trial,  indeed,  the 
defendant  gave  in  evidence  certain  drafts  which  had  been  drawn  by 
mail  contractors,  drawn  in  some  instances  upon  the  Postmaster  Gen- 
eral, and  in  others  upon  the  treasurer  of  the  General  Post  Office, 
(who,  I  suppose,  is,  in  fact,  the  disbursing  clerk  of  that  Department ) 
These  drafts,  it  seems,  were  accepted  by  those  officers,  respectively, 
and  had  passed  to  the  bank  by  endorsement,  in  the  way  of  trade. 

The  bank  claimed  to  be  allowed  the  amount  of  these  drafts,  by 
way  of  offset  against  the  balance  due  to  the  United  States,  upon  the 
account;  and  the  court  allowed  the  offset,  and  gave  judgment  accord- 
ingly. The  Supreme  Court  simply  affirmed  the  judgment  of  the 
court  below. 

Viewing  this  judgment,  in  itself,  and  in  its  legitimate  legal  con- 


16 

sequences,  there  is  nothing  in  it  conflicting  with  my  doctrines,  as 
herein  expressed.  For  the  action  of  the  court  did  no  more  than 
allow  the  amount  of  the  drafts  to  be  set  off  against  so  much  of  the 
balance  of  account  due  the  United  States.  And  it  is  now  the  well- 
established  doctrine  of  the  Supreme  Court,  that  equitable  as  well  as 
legal  claims  may  be  allowed  in  offset.  (See  Gratiot  vs.  United  States, 
15  Peters,  336 — especially  p.  370.)  And  if  it  were  made  known  to 
the  court,  by  investigation  of  the  circumstances,  that  the  amount  of 
the  drafts  was  honestly  and  equitably  due  to  the  holder,  the  court 
could  do  no  otherwise  than  allow  it  to  be  set  off,  even  though  the 
court  should  be  of  opinion  that  the  Postmaster  General  and  the 
treasurer  had  no  lawful  authority  to  accept  those  drafts  as  bills  of 
exchange. 

It  is  not,  however,  the  judgment  of  the  court  that  the  claimants 
rely  upon,  but  rather  what  was  said,  arguendo,  by  the  learned  judge 
who  pronounced  the  opinion.  It  is  true  that  there  are  several  pas- 
sages in  the  reported  opinion  tending  to  show  that  the  court  treated 
the  drafts  used  in  evidence  in  that  case  as  bills  of  exchange,  subject 
to  the  law  merchant,  and  argued  to  the  effect  that  the  United  States, 
when  it  becomes  a  party  to  negotiable,  commercial  paper,  is,  like 
private  men,  bound  by  that  law.  Still,  there  is  not  a  sentence  in 
the  opinion  tending  to  the  conclusion  that  the  nation  is  bound  by  the 
mere  fact  of  acceptance  by  its  officer.  To  the  contrary,  the  court  left 
the  party  in  that  case,  under  the  burden  imposed  upon  all  by  the  well 
known  law  of  agency,  that  is,  whoever  deals  with  a  known  agent, 
must,  at  his  own  peril,  know  the  character  and  extent  of  the  agent' s 
power.  For  the  court,  after  stating  various  important  matters  which 
are  admitted  and  foreclosed  by  a  genuine  and  authoritative  accept- 
ance, uses  the  plain  and  strong  language:  "All  he  had  to  look  to  was 
the  genuineness  of  the  acceptance,  and  the  authority  of  the  officer  to 
give  it." 

Upon  the  whole,  I  am  clearly  of  opinion,  that  the  acceptance  by 
Mr.  Floyd,  the  Secretary  of  War,  of  the  drafts  drawn  upon  him  by 
Russell,  Majors  &  Waddell,  now  held  by  Peirce  &  Bacon,  are  not  legal 
contracts  of  the  United  States,  and  that  the  United  States  is  not 
legally  bound  to  pay  any  money  on  account  thereof. 

As  to  the  supposed  equity  of  the  claim,  beyond  the  law,  I  must 
decline  to  attempt  the  investigation.  Such  enquiries,  it  seems  to 
me.  do  not  properly  belong  to  my  office,  but  to  the  judiciary  and  to 


17 

Congress.  Indeed,  it  seems  strange  to  me,  and  is  rather  a  suspicious 
circumstance,  that  this  matter  has  never  been  presented  to  the  court 
of  claims,  where  both  the  law  and  the  equity  of  the  case  could  be 
fully  heard  and  determined.  It  has  been  objected,  I  know,  that  a 
proceeding  in  that  court  would  be  ineffectual,  because  it  cannot 
enforce  the  payment  of  the  debt  when  ascertained  and  adjudged. 
But  that  objection  lies  equally  against  all  courts  j  for  none  of  them, 
not  even  the  highest,  can  issue  execution  against  the  United  States, 
or  compel  the  government  to  pay  a  dollar.  No  money  can  be  drawn 
from  the  Treasury,  for  any  purpose,  but  in  consequence  of  appro- 
priations made  by  law.  It  follows,  therefore,  in  every  such  case, 
that  the  actual  payment  must  depend  upon  the  action  of  Congress. 
And  I  cannot  question  the  wisdom  and  justice  of  Congress,  by 
doubting  its  readiness  to  make  appropriations  which  may  be  necessary 
to  pay  all  honest  claims  against  the  government,  whenever  lawfully- 
allowed,  by  the  proper  tribunals. 

I  have  the  honor  to  be,  most  respectfully,  sir,  your  obedient  ser- 
vant, 

EDWARD   BATES, 

Attorney  General. 


Hollinger  Corp. 
pH8.5 


